Ashcroft faces new funding probe

New doubts were raised over Tory Party funding last night when it emerged that donations made by a company owned by Lord Ashcroft - its deputy chairman and the mastermind behind a strategy for seizing marginal seats from Labour - are to be investigated by the official elections watchdog.

The Electoral Commission confirmed that it was mounting a formal investigation into funds pumped into Tory coffers by Bearwood Corporate Services.

The commission is examining possible "failure to comply" with the Political Parties, Elections and Referendums Act. The move follows allegations from Labour MPs that the UK-registered firm was the beneficiary of cash moved from a Belize-based company called Stargate Holdings, which they claim does not comply with strict laws banning overseas donations.

Since David Cameron became party leader in late 2005, donations from Bearwood have totalled over £3m, including donations in kind - making it one of the party's biggest corporate donors.

The Tories have always insisted the money entering party coffers is "legal and permissible" under the law, which states that political parties can only take donations from companies registered and "carrying on" business in this country.

Lord Ashcroft has become one of the most powerful figures at Tory HQ, where he is credited with devising what many believe is a strategy that could return the party to power by pouring resources into Labour-held marginals. He was partly brought up in Belize and reportedly still has extensive interests there. He has consistently refused to say whether he is resident, or pays taxes, in the UK.

The Tories insisted last night they were satisfied the donations complied with the rules. "The Conservative Party compliance unit applies two strict tests to all company donations in accordance with Electoral Commission guidance," a spokesman said. "They are: is the company UK-registered, and is the company trading? The donations from Bearwood met those tests."

The Electoral Commission made clear, however, that it saw reason to launch an inquiry. "We have begun a formal investigation into whether there has been any failure to comply with the Political Parties, Elections and Referendums Act in connection with a number of donations made to the Conservative Party by Bearwood," it said in a statement.

John Mann, one of the Labour MPs pressing for an inquiry, welcomed the announcement. "Tax exiles should not be allowed to give money to influence British elections," he told the Observer. "I lodged a request for an investigation six months ago. That one has now been set up is a big move and a significant first step."

The filing of fraud charges against Allen Stanford, the businessman turned cricket entrepreneur, last week, has put the spotlight firmly on tax havens such as Antigua. Gordon Brown has pledged to lead an assault on tax havens at the April meeting of the G20 industrial nations.

Ashcroft only received the peerage after giving what Downing Street said was a "clear and unequivocal assurance" that he would will take up permanent residence in the UK.